Marketing Selection and Retail Location Analysis

Three Pending Issues.

Case Discussion from Berman & Evan book. Challenges in the role play of Manufacturer, offline and online retailers. Project group members list.

Previous topics discussed

Introduction to the world of retailing. Types of retailers. Buying behavior in retail. Multichannel Retailing. Todays Discussion. Addressing e retail operational issues. (Case Discussion) Retail Location & trade area theories.

Exercise to do
Think Yourself as a Shoe Retail Merchant. You are thinking to open chain of your retail offering in different part of country. What factors will you be considering before the selection of Location. How will you estimate the demand and supply of shoe in that location.?

Agglomeration
Agglomeration captures the countervailing effects of complementarity and competition among retailers Intra-type - Stores of the same type locating near one another

Facilitates consumer search Examples: motor miles and restaurant rows

Inter-type - Stores of different types locating near one another

Facilitates multi-purpose shopping, virtual one-stopshopping, and offers a wider variety of goods to choose from Examples: shopping centers and shopping malls

Agglomeration
Trip chaining Make unrelated purchases on the same trip Price search Search until you find an attractive price Cherry picking Visit multiple stores for their bargain prices

Agglomeration

RETAIL LOCATION

Relative to customers

Relative to other stores

Retail Competition

Destination Effect

Retail Formats for Accessing a Target Market Retail Formats

Store-Based Nonstore-Based

Business District

Shopping Centers/Malls

Freestanding

Nontraditional

Street Peddling Direct Selling

Mail-Order

Automated Merchandising Systems

Internet

Estimating Retail Demand

Trade Area Assumption : Determining the most fitting trade area (Convenience , destination or others).Determining Purchasing Power Index. Calculations of Per capita Sales: Calculate spending in the particular store category plus spending in the particular department of general merchandise store. Trade Area Per capita sales by store category: Trade Area Demand in Sales by store category. Trade Area Demand in Sq Feet by store category.

Estimating Demand Data Source Trade Area Govt Agencies or Assumption Marketing Data Collectors PPI Index PPI is calculated by trade areas per capita income divided by Indias Per capita income. Indias Per capita Based on Censes Sales by Shoe Data Category. Calculate Spending in the particular store category plus spending in that category in general merchandise outlet.

Illustration Trade Area Population : 19,065. PPI = 100*(Rs 22,427/ Rs. 21,587) = 104.

Sales per capita : shoe store Rs 79.87 Shoe department of general Merchandise stores Rs 36.41

Estimating Demand Data Source Trade area per Calculation based capita sales by store on above data category

Illustration Sales per capita shoe store Rs.79.87 * 104/100 = Rs.82.98

General Merchandise Store: Rs.36.41* 104/100 = Rs 37.82. Total = Rs 120.80 Trade area demand Calculations based Sales demand in sales on above data Rs.82.98* 19,065 = Rs 1,582,000. General Merchandise Rs.37.82* 19,065 = Rs 721,000.

Estimating Supply List of stores in shoe category

Data source Yellow pages & other

Illustration Bata- 1000 Sq feet Khadim 2000 sq feet Total 3000 Sq feet.

General Merchandise store

Discount Store 4000 Sq Ft. Department Store 4000 Sq ft. Total 8000 Sq ft. (3000 +8000) Sq ft.= 11000 Sq Ft.

Total Current Supply in trade area

Retail Location Theories

Retail Gravity Theory Saturation Theory Buying Power Index

Retail Location Theories

Retail gravity theory suggests that there are underlying consistencies in shopping behavior that yield to mathematical analysis and prediction based on the notion or concept of gravity.

Huffs Gravity Model

Based on the premise that the probability that a given customer will shop in a particular store or shopping center becomes larger as the size of store or center grows and distance or travel time from customer shrinks

Huffs Law
Assumptions: The proportion of consumers patronizing a given shopping area varies with the distance from the shopping area The proportion of consumers patronizing various shopping areas varies with the breadth and depth of merchandise offered by each shopping area The distance that consumers travel to various shopping areas varies for different types of products purchased The pull of any given shopping area is influenced by the proximity of competing shopping areas

Huffs Model Formula

S j Tij b Pij = n S j Tij b j =1 Where Pij = Probabilit y of a customer at a given point of origin i traveling to a particular shopping center j S j = Size of shopping center j Tij = Travel time or distance from customer' s starting point to shopping center b = An exponent t o Tij that reflects the effect of travel time on different kinds of shopping trips

University and Shopping Centers: Gravity Model Illustration

Huffs Model: The Solution

Pij = 1000 32 (1000 32) + (500 52) + (100 12)

Probability = .43 .43 x 12,000 students = 5,160 customers 5,160 customers x $150 = $774,000

Repeat steps 1 to 3 for the remaining areas and then sum them.

Retail Location Theories

Saturation theory examines how the demand for goods and services of a potential trading area is being served by current retail establishments in comparison with other potential markets.

Retail Location Theories

Index of retail saturation (IRS) is the ratio of demand for a product (households in the geographic area multiplied by annual retail expenditures for a particular line of trade per household) divided by available supply (the square footage of retail facilities of a particular line of trade in a geographic area).

Retail Location Theories

Index of Retail Saturation (IRS)

IRS = (H X RE)/RF
where IRS is the index of retail saturation H is the number of households in the area RE is the annual retail expenditures for a particular line of trade per household in the area RF is the square footage of retail facilities of a particular line of trade in the area (including square footage of the proposed store)

Retail Location Theories

Buying power index (BPI) is an indicator of a markets overall retail potential and is composed of the weighted measures of effective buying income (personal income, including all nontax payments such as social security, minus all taxes), retail sales, and population size.

Retail Location Theories

Buying Power Index

income)

BPI = 0.5(the areas percentage of Indian effective buyin + 0.3(the areas percentage of Indian retail
sales)

+ 0.2(the areas percentage of Indian population)